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Since the first wave of retail clinics splashed into the care delivery scene at the turn of this century, more than 1,800 clinics now treat some 10 million patients each year. Early on, retail clinics have been viewed as disruptive innovations that will transform care delivery by replacing the role of traditional hospitals. However, this transformation has not materialized as once expected, leading to some skepticism. Will retail clinics ever cause hospitals to disappear? Are retail clinics siphoning patients away from hospitals? Are regulatory and reimbursement issues the real hurdles to disruption? Unfortunately, many of these questions are answered without a full understanding of the disruptive innovation theory. The theory is pretty clear that the retail clinic model is truly disruptive to the current care delivery system. But the disruptive process is not what most people imagine it to be.

A disruptive innovation in health care is a product or a service that makes health care more affordable, accessible, and effective. In this context, retail clinics are disruptive because they make certain types of care more affordable, accessible, and effective for a specific group of patients. Moreover, the model has the potential to transform how certain types of care are provided. But, contrary to popular beliefs, the disruptive force of retail clinics is gentle and steady—and hospitals, in fact, welcome them. Retail clinics transform care delivery, not by taking things away from the current system, but by adding new options for underserved patients. Retail clinics also allow new technologies and business models to be tested and perfected.

Retail clinics generally target new patients. Most think of disruption as a process of new solutions taking away customers of incumbent solutions. Such phenomenon is simple competition, not disruption. Contrary to popular belief, retail clinics do not take a high volume of patients away from hospitals. Instead, they target patients who choose not to visit doctors for various reasons, such as their illnesses not being serious or not wanting to wait. These are customers that current hospitals do not serve. So, retail clinics are creating a new market.

Retail clinics also relieve overcrowding of hospitals. Today, we view retail clinics to be potentially supporting hospitals by helping them reduce the long wait line. Patients who used to go to the ER with a simple stomachache and wait several hours can now consider a retail clinic as an alternative. Overcrowding increases hospital’s overhead costs, as hospital resources are stretched to deal with waiting patients. When hospitals’ resources are stretched, everyone has to work extra hours, facilities and instruments are overused, and the risk of making mistakes increases. These are additional costs that cause care delivery to be more expensive.

Retail clinics affect the future “jobs to be done,” rather than the current needs of patients. The future “jobs to be done” for many patients today are managing chronic diseases, quickly diagnosing problems, and pursuing healthy living. Currently, these needs are poorly met by most hospitals and physician’s offices, which are optimized for acute symptoms such as heart attacks, bodily injuries, and surgeries. As more and more Americans will have to deal with chronic illnesses such as diabetes or mental health disorders, retail clinics over time could offer more effective care for these patients than general hospitals can.

Retail clinics are cradles of new business models and technological adoptions. Because of regulatory, cultural, and structural issues, the current hospital environment is not well suited for implementation of new technologies (e.g. telemedicine) or new business models (e.g. bundling of primary care with wellness programs)—innovations which have the potential to make care more accessible, affordable, and effective. The retail clinic environment provides controlled opportunities for these innovative ideas to be tested and flourish over time. By allowing these innovations to germinate, retail clinics serve as disruptive forces.

We still see retail clinics to be transformational, not because they will replace the incumbent model today, but because they are ready for the new emerging customers. Hospitals remain a gold standard for patients requiring serious medical interventions. But, for managing chronic diseases and healthy lifestyle, hospitals remain sorely ineffective. For years to come, we will continue to have patients who need to be treated for acute medical problems. But, in the next two to three decades, we will likely have ten times more chronic disease patients than acute patients. Retail clinics are likely the best model to deal with these patients. That is transformative.

The forces of disruptive innovations are deadly to incumbents, not because the power of disruption is overwhelming, but because the power of disruption never appears to be significant to the incumbents. Hospitals should worry about retail clinics, not because these clinics take their patients away today, but because these clinics bring in currently underserved patients with clinical issues that hospitals are not well equipped to address. And the world is becoming full of these new types of patients. Unless hospitals are ready for this new world, they will become less important to customers.

Spencer researches disruptive innovation in the healthcare industry. He has over 15 years of professional experience working with U.S. and international healthcare enterprises, most recently as an equity research analyst covering medical technology companies.

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